Income tax developments. This page provides generalized information and may not apply to you and should not be acted upon without specific professional advice. You should consult your tax adviser if you have any questions.

Monday, April 25, 2011

The subsidies to buyers of 'qualifying' insurance policies will induce sharp reductions in the supply of labor.

Supporters of ObamaCare acknowledge it will have some unintended consequences. Yet surprisingly little attention has been focused on the law's most problematic provision: government subsidies to help individuals and families purchase health insurance.

This new entitlement—which the chief actuary of the Centers for Medicare and Medicaid Services estimates will cost more than $100 billion per year once it is fully implemented—will damage the country's long-term fiscal outlook. It also will introduce far-reaching negative effects on rewards to work and bizarre new inequities into American life.

The health law establishes insurance exchanges—regulated marketplaces in which individuals and small businesses can shop for coverage—and minimum standards for the insurance policies that can be offered. Because the policies will be so costly, there's a subsidy for buyers that phases out as family income rises. This sounds reasonable—but the subsidies required to make a "qualifying" insurance policy affordable are so large that their phaseout creates chaos.

Starting in 2014, subsidies will be available to families with incomes between 134% and 400% of the federal poverty line. (Families earning less than 134% of poverty are eligible for Medicaid.) For example, a family of four headed by a 55-year-old earning $31,389 in 2014 dollars (134% of the federal poverty line) in a high-cost area will get a subsidy of $22,740. This will cover 96% of an insurance policy that the Kaiser Family Foundation predicts will cost $23,700. A similar family earning $93,699 (400% of poverty) gets a subsidy of $14,799. But a family earning $1 more—$93,700—gets no subsidy.

Saturday, April 16, 2011

Just how much do you spend to foot the bill for U.S. troops in Iraq and Afghanistan? What's your share of the tab for interest on the national debt? How about to fund Medicare and Social Security, or to support foreign aid or the FBI?

Friday, April 15, 2011

On Thursday, President Barack Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act (PL 111-240). The Senate approved the bill on April 5, and the House voted in favor of it on March 3.

In March 2010, the Patient Protection and Affordable Care Act (PL 111-148) (part of the health care reform legislation) expanded the 1099 reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation), and to include payments made for property, starting with payments in 2012. The 1099 Act repeals the expansion to payees that include corporations by removing IRC § 6041(i). It repeals the expansion to cover payments for property by removing the language “amounts in consideration for property,” and “gross proceeds” from section 6041(a). The act also removes IRC § 6041(j), which granted the Treasury secretary authority to issue regulations under section 6041, including “rules to prevent duplicative reporting of transactions.” These changes are effective for payments made after Dec. 31, 2011 (when the new rules were to take effect), and they revert those portions of section 6041 to how they were before the Patient Protection and Affordable Care Act.

The Small Business Jobs Act enacted a requirement that individuals who receive rental income issue Forms 1099 to service providers for payments of $600 or more. It did this by specifying that “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” The 1099 Act strikes IRC § 6041(h) in its entirety, effective for payments made after Dec. 31, 2010 (the original effective date of section 6041(h)), placing individuals who receive rental income in the same position as if the expanded information reporting requirements had never been enacted.

As a result of the repeal, the 1099 reporting rules continue unchanged: Namely, under IRC § 6041(a), “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient. The Code applies this requirement to payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” and the Treasury regulations add, “commissions, fees, and other forms of compensation for services rendered aggregating $600 or more” as well as interest (including original issue discount), royalties and pensions (Treas. Reg. § 1.6041-1(a)(1)(i)).

This required information must be reported each calendar year for payments made during that calendar year.

The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as “a victory for taxpayers.”

Increased Penalties Not Repealed

The 1099 Act did not repeal the increase in the information reporting penalties that were mandated by the Small Business Jobs Act. The first-tier penalty under IRC § 6721 for failure to timely file an information return was increased from $15 to $30, and the calendar-year maximum from $75,000 to $250,000. The second-tier penalty was increased from $30 to $60, and the calendar-year maximum from $150,000 to $500,000. The third-tier penalty was increased from $50 to $100, and the calendar-year maximum from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increased from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increased from $100 to $250.

The increased penalties will be adjusted for inflation every five years.

The Small Business Jobs Act also similarly increased the penalties for failure to provide correct payee statements in addition to the information reporting penalties (IRC § 6722).

The increased penalty amounts were effective Jan. 1, 2011, and remain in effect after the repeal of the expanded 1099 reporting requirements.

Friday, April 8, 2011

WASHINGTON - Those yearly statements that Social Security mails out — here's what you'd get if you retired at 62, at 66, at 70 — will soon stop arriving in workers' mailboxes. It's an effort to save money and steer more people to the agency's website.

The government is working to provide the statements online by the end of the year, if it can resolve security issues, Social Security Commissioner Michael Astrue said. If that fails, the agency will resume the paper statements, which cost $70 million a year to mail, he said.

"We'll provide it, we expect, one way or another, before the end of the calendar year," Astrue told The Associated Press. "We're just right now trying to figure out the most cost-effective and convenient way to provide that to the American public."

The statements, mailed to 150 million people each year, project future benefit payments, helping workers plan for retirement.

The decision to suspend the mailings was unrelated to the talk of a possible partial government shutdown. It was, however, related to the agency's operating budget, which has essentially been frozen at 2010 levels — minus about $350 million in economic stimulus money the agency had been using to handle claims.

Advocates for older Americans say they are sympathetic about the agency's budget problems, but several said an online option is insufficient, especially for people who may not have computer skills or access to computers.

"As far as the information being available online, that's not going to help a lot of people we work with," said Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare.

"This was a concrete piece of paper, a document that workers would receive that would give them confidence in the program," Richtman said. "Otherwise, they hear a lot of the debate in Washington. It's going to be there; it's not going to be there."

Claims for retirement and disability benefits are up significantly since the nation's economy soured in 2008. About 2.7 million people applied for retirement benefits last year, a 17 percent increase from 2008, according to agency statistics. About 3.2 million people applied for disability benefits last year, a 23 percent increase.

Since the 1980s, Social Security statements have been mailed each year to workers older than 25. They include a history of taxable earnings for each year — so people can check for mistakes — as well as the total amount of Social Security and Medicare taxes paid over the lifetime of the worker.

The statements provide estimates of monthly benefits, based on current earnings and when a worker plans to retire. Workers can claim early retirement benefits starting at age 62. Full benefits are available at age 66, a threshold that is gradually increasing to 67 for people born in 1960 or later.

The statements are mailed throughout the year, so many people have already received them this year. Tens of millions have not.

The agency does offer a benefits estimator on its website that Astrue said can be even more helpful than the annual Social Security statements. Workers can enter their Social Security numbers on the website and get estimates of future benefits, depending on when they plan to retire.

"You can go online and you can get a very accurate estimate of your likely retirement benefits," Astrue said. "You can run scenarios."

The website, however, does not provide the detailed earnings and payroll tax history that workers had been receiving in the mail each year.

Mary Johnson, a policy analyst at The Senior Citizens League, said the detailed paper statements help workers ensure they are getting credit for their proper earnings each year.

"When we get these we realize just how modest our benefit will be, and the need for savings, and to work as long as we are able to," Johnson said in an email.

Ending the statements is part of a trend in government to conduct more of its business electronically. Social Security already mails out few paper checks. About 88 percent of beneficiaries have their payments deposited directly into bank accounts.

Social Security has been beefing up its website in recent years, offering more services and information online as millions of computer-savvy baby boomers reach retirement age. The agency launched a new public campaign this week featuring two celebrities that baby boomers will find familiar: actors Patty Duke and George Takei.

Takei starred in the original "Star Trek" TV show, and the campaign features ads playing on a "Star Trek" theme, with Duke and Takei emphasizing how easy it is to apply for benefits online.

About 41 percent of applications for retirement benefits come in online, Astrue said. About 44 percent of Medicare applications are done online. In all, the agency's website attracts about 11 million visitors each month.

TEL AVIV (MarketWatch) – A data breach at the world’s largest provider of permission-based marketing-email services may have enabled unauthorized people to access the names and email addresses for customers of major financial-services, retailing and other companies, company statements and media reports say.

On April 1, Epsilon, the Dallas provider of email services for companies, said in a news release that on March 30, "A subset of Epsilon clients’ customer data [was] exposed by an unauthorized entry into Epsilon’s email system."

"The information that was obtained was limited to email addresses and/or customer names only. A rigorous assessment determined that no other personal identifiable information associated with those names was at risk. A full investigation is currently underway."

Companies including Walgreen Co., the Deerfield, Ill., drugstore chain; J.P. Morgan Chase & Co. and Capital One Financial Corp., the financial-services providers based in New York and McLean, Va., respectively; New York & Co., the New York apparel chain; and Kroger Co., the Cincinnati supermarket operator, said they were informed by Epsilon that files related to their customer bases might have been exposed.

SecurityWeek, which follows the Internet- and enterprise-security industry, reported that other companies affected by the breach included Citigroup and US Bancorp, the New York and Minneapolis financial-services firms, retailer Brookstone, consultants McKinsey & Co., the hotel chains Marriott International Inc. and Ritz-Carlton, and TiVo Inc., the Alviso, Calif., provider of digital-video-recording solutions.

A number of the companies warned their customers not to open email from unfamiliar senders and said that they don’t ask for personal information, like credit-card and Social Security numbers, via email.

On its website, Epsilon says that it employs more than 2,200 people worldwide and sends more than 40 billion emails annually on behalf of more than 2,500 clients, including 7of the top Fortune 10 companies. Epsilon is a subsidiary of Alliance Data Systems Corp., the Plano, Texas, provider of marketing solutions.

Robert Daniel is MarketWatch's Middle East bureau chief, based in Tel Aviv.

About Me

Born and raised in Hong Kong. Moved to Sacramento, CA in 1968 to attend college.

Recent travel destinations include Antarctica Peninsular, Arctic Svalbard; Churchill, Manitoba; Machu Picchu; Shanghai; river cruise from St. Petersberg to Moscow; river cruise from Nanjing to Chongqing; plus various national parks.

My first SLR camera is a Minolta SRT-101 and my latest camera is a Nikon D300.